Levels v. Merlino
969 F. Supp. 2d 704
N.D. Tex.2013Background
- Plaintiffs Byron and Tangela Levels bought the Dallas property via owner financing from Defendants Andrew and Lynne Merlino with a note and a Deed of Trust securing the loan.
- The original Note (Apr 7, 2004) and subsequent Modifications (May 15, 2007; Jun 25, 2010) included balloon payments; plaintiffs allege the loan was presented as a 30-year amortization.
- Plaintiffs allege misrepresentations that the loan was a 30-year loan and that Defendants mismanaged escrow, taxes, and loan amounts, causing damages.
- Foreclosure on the Property occurred on Mar 6, 2012 after a TRO temporary restraining order in Dec 2011, with questions about Notice of Sale timing.
- Plaintiffs asserted multiple causes of action (negligence, conversion, fraud, negligent misrepresentation, breach of contract, TILA, RESPA, Texas Finance Code), which Defendants moved for summary judgment on various grounds.
- The magistrate judge recommended granting in part and denying in part Defendants’ Motion for Summary Judgment; the district court accepted the findings and recommendation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty under HUD/RESPA or a special relationship | Levels allege a duty under HUD/RESPA or a special relationship. | Merlinos argue no such duty exists absent incorporation or a valid special relationship. | No duty under HUD/RESPA; no stand-alone special relationship duty. |
| Conversion viability | Plaintiffs claim escrow funds were converted. | Plaintiffs consented to payments and cannot claim conversion. | Conversion claim barred; no wrongful dominion. |
| Fraud claims timeliness and tolling | Discovery rule or fraudulent concealment tolling applies to Note/First Modification. | Claims time-barred; tolling arguments insufficient for Note/First Modification; Second Modification debated. | Fraud claims related to Note and First Modification barred; Second Modification fraud claims analyzed for tolling; overall partial grant/deny. |
| Negligent misrepresentation viability | Defendants misrepresented loan terms (30-year vs balloon). | Economic loss rule, independent injury, and statute of limitations bar claims where applicable. | Note/First Modification claims barred by statute of limitations; Second Modification claim disputed material fact remains; others granted. |
| Breach of contract viability | Plaintiffs performed; Defendants allegedly breached Second Modification and Deed of Trust. | Affirmative defense of prior breach; evidence inadequate to negate material breach timing. | Denies summary judgment for breach of contract; issue remains to be tried. |
Key Cases Cited
- Gutierrez v. Excel Corp., 106 F.3d 683 (5th Cir. 1997) (elements of negligence and proximate cause standards guidance)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (summary judgment standard: genuine disputes of material fact)
- Colonial Penn Ins. Co. v. Market Planners Ins. Agency, 1 F.3d 374 (5th Cir. 1993) (pleading tolling and discovery rule considerations in federal court)
- Martinez Tapia v. Chase Manhattan Bank, N.A., 149 F.3d 404 (5th Cir. 1998) (reading documents would reveal fraud; tolling doctrines not available)
- ITT Commercial Fin. Corp. v. Bank of the W., 166 F.3d 295 (5th Cir. 1999) (standard for determining conversion and possession issues)